FTX Seeks Court Approval To Sell $175M Claim Against Genesis

In a legal move to recover losses, cryptocurrency exchange FTX has petitioned a Delaware court to sell off its $175 million claim against the bankrupt digital financial services firm, Genesis Global Capital (GGC). The claim, originally made by Alameda Research, the associated hedge fund of the insolvent cryptocurrency exchange, is now at the center of FTX’s pursuit for compensation.

The motion, filed on February 1, outlines FTX’s intention to sell the claim either in its entirety or in parts, strategically timing the sales to capitalize on optimal market conditions. Notably, current market dynamics show that claims against Genesis are fetching 65% of their face value, a significantly higher value than the 38% that Alameda Research claims are currently attracting.

To streamline the sales process and mitigate any potential delays, FTX is seeking court approval for a comprehensive sales procedure that would apply to all transactions related to the claim. This strategy aims to alleviate the cost and procedural delays associated with filing individual motions for each proposed sale.

The proposed sale order specifies that the sale price must not fall below 95% of the highest price quoted by one or more leading market-makers for general unsecured claims of GGC. This reference date is set within three days of the actual sale, ensuring a fair and transparent valuation process.

FTX’s pursuit of this legal avenue underscores the competitive nature of the market for claims against Genesis, with the exchange keen on maximizing the recovery of its $175 million claim. If the court approves the motion, FTX will have the flexibility to navigate the market dynamics and sell the claim at the most advantageous moments.

FTX Leads Bankruptcy Recovery Efforts Against Genesis

Investors and industry observers will be closely watching the proceedings, as the outcome could set a precedent for similar cases involving cryptocurrency exchanges and financial services firms navigating bankruptcy proceedings.

“Entry of this Order is in the best interests of the Debtors and their estates, creditors, interest holders and all other parties-in-interest.”

Objections to the sale of the claim can be lodged until February 15. Initially, in May 2023, FTX aimed to recover $3.9 billion from Genesis, in accordance with bankruptcy law. However, in August 2023, a revised claim of $175 million was negotiated between FTX and Genesis, gaining court approval in October. Simultaneously, other claims by FTX against Genesis were nullified.

The rationale behind the substantial reduction in the claim amount was articulated by both parties, citing the unpredictability of potential recoveries and the desire to sidestep prolonged and costly litigation, the outcome of which was deemed uncertain.

FTX faced a collapse in November 2022 following the discovery of irregularities in its account books. At that time, Genesis had $175 million invested in its FTX account, clarifying that this did not impact its market-making operations.

As a subsidiary of the Digital Currency Group, Genesis declared bankruptcy in January 2023, triggering a protracted dispute with the Gemini cryptocurrency exchange. Genesis, responsible for managing the Gemini Earn program, encountered complications when withdrawals were halted. On February 1, Genesis reached a $21 million settlement with the United States Securities and Exchange Commission (SEC) concerning the Gemini Earn program.

A crucial court hearing is scheduled for February 14 in New York, where the proposed bankruptcy reorganization plan for Genesis debtors and the inclusion of the SEC settlement within it will be deliberated upon.